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It happened again. Income-seeking investors piled into a 3% payer under the guise of dividend growth and safety… and they lost 10% in a single day.

Wal-Mart (WMT) lured them in and lowered their net worth this time. Before the drop, the company’s yield was at an all-time high of 3.1% thanks to 42 years of consecutive payout increases. The aristocratic allure of this dividend-payer tempted forward-looking fans. They envisioned today’s payout compounding itself in their portfolio at previous growth rates.

But Wal-Mart bulls missed several risk factors while fantasizing about their 2025 dividend payments. And they mistakenly believed a 3% yield would be sufficient to buffer any bad news.… Read more

China’s slowdown and a raft of scandals—Volkswagen’s (VW) emissions clunker being the latest—have kept nervous investors away from auto stocks this year.

Their first-level knee-jerk reactions are costing them income. Right now, General Motors (GM) and Ford Motor Company (F) offer yields around 4%. And both companies should have no trouble paying their shareholders for years to come, thanks to robust sales that, despite mainstream naysaying, actually still have plenty of room to run.

US Car Demand: Shifting Into Second Gear

US car sales have been on a tear, and that continued in September, when consumers drove 1.44 million cars and trucks off dealers’ lots, up 16% year-over-year.… Read more

Many income investors are so desperate for dividends today that they’re piling into practically any large stated yield they find. On the surface this may seem like a sound approach. After all, if the market pulls back again, dividends should support the stock prices of those that pay.

If the dividend is still there, that is. When companies slash dividends, investors typically slash their stock prices by double-digits. Recent dividend cutters have been pummeled in the months after announcing lower payouts ahead:

Fortunately it’s possible to steer clear of the next dividend disaster, thanks to a new “DIVCON screen” put together by the income strategy gurus at Reality Shares Advisors.… Read more

The software giant yields a respectable 3.1% today. That’s not enough income for my high single-digit income goals. Granted, it could be in a few years if Microsoft is able to continue its breakneck rate of dividend growth.

It’s boosted its payout at an annualized rate of 17.6% in the last five years. It also managed to hold its payout steady during the dark days of the Great Recession.

Earlier this week, Oaktree Capital Group’s billionaire co-founder Howard Marks had some sharp words for the Fed. He told Bloomberg:

“I wish the government would get out of the business of setting rates, and I wish rates would stop being unnaturally low.”

Marks is probably the richest and smartest money manager that individual investors have never heard of. He has a cool $100 billion under management and he’s been a regular on Forbes’ World Billionaires list for several years running.

Oaktree is famous for a number of gutsy, profitable moves – many of which have involved distressed debt. The firm has earned its clients an astounding 19% after fees on its distressed debt funds – helping make Marks himself a billionaire twice over.… Read more

Most investors think stock prices always follow earnings. So they obsess over profits – and the sales growth needed to drive them higher.

They’re partly right – but they’re more wrong than right. Their first-level thinking is missing a couple of small but critical nuances.

First, stock prices are quoted per share. When you buy a stock, you’re not buying the entire company. Instead, you’re buying a very small percentage as represented by your shares. So as a shareholder, it’s actually irrelevant to you whether or not your company’s earnings go up in absolute terms. What matters to you is that its earnings per share (EPS) go up year-after-year.… Read more

Aluminum maker Alcoa (AA), down 41% year-to-date, is starting to attract attention from contrary-minded investors. They’re misguided – it’s foolish to buy a stock just because it’s gotten crushed. But they’re actually on the right track (albeit for the wrong reason), because Alcoa’s ugly duckling business is likely to deliver beautiful swan stock returns.

The corporate spinoff – where a company splits into two (and sometimes more) new publicly traded firms – is barely a blip on the radar for many first-level investors. They prefer to fixate on its much-ballyhooed cousin, the IPO.

That’s too bad for them, because while hot new offerings may pop for big gains out of the gate, they’re equally likely to erase those gains—and more—once the hype dies down.… Read more

Many investors are concerned that high yielding preferred shares will not perform well in a rising rate environment. I’ve heard from several readers who share these sentiments. Since April 1st, ETFs like the PowerShares Preferred Portfolio (PGX) and the iShares S&P U.S. Preferred Stock Index Fund (PFF) are down 2% and 3.7% respectively.

These fears are overblown for a couple of reasons:

It’s unlikely that interest rates are going to rise high enough to make these yields unattractive in relative terms anytime soon.

These days, more preferred shares have floating rates anyway.

Not familiar with preferred shares? You’re not alone – most investors only consider “common” shares of stock when they look for income.… Read more

Last Thursday, Janet Yellen told investors the same thing she always says. They, in turn, took the news as they usually do. They panicked and sold everything.

The S&P 500 finished Friday down 1.6%. The Dow dropped 1.8%. And the Nasdaq fell 1.4% – but Real Estate Investment Trusts (REITs) held up well. As a sector, they finished the day unchanged, while my favorite subset immediately rallied (more on this shortly).

REITs themselves usually pay higher dividends than regular stocks, as they can avoid income taxes if they pay out most of their earnings to their investors. These higher payout ratios have boosted their popularity with investors since interest rates went to zero in 2008.… Read more

With the S&P 500 yielding a measly 2.1%, where’s an income investor supposed to look these days?

I’ll tell you where. A place where the dividends flow like maple syrup, and the companies raise their payouts not once but twice a year. I’m talking about a little place called Canada.

Investors loved the Looney and everything else Canadian when crude oil was trading hands for triple-digits. It wasn’t too long ago (January 2013) that the Canadian dollar was more valuable than its U.S. counterpart. It’s shed 25% against the greenback since.

Canadian stocks peaked 18 months later than its currency (about this time last year).… Read more